PFM Asset Management LLC Monthly Market Update April 2013

Transcription

1 PFM Asset Management LLC Monthly Market Update April 2013 Steven Alexander, CTP, CGFO, Managing Director D. Scott Stitcher, CFA, Senior Managing Consultant Khalid Yasin, CHP, Senior Managing Consultant Richard Pengelly, CFA, Senior Managing Consultant Gregg Manjerovic, CFA, Portfolio Manager Rebecca Geyer, CTP, Senior Analyst One Keystone Plaza, Suite 300 North Front & Market Streets Harrisburg, PA fax 300 S. Orange Avenue, Ste Orlando, FL (407) Yes 2 PFM 1

2 Fed Policy Creating a Bubble? Source: 2

3 Summary Economic Conditions Q4 U.S. GDP restated to show increased economic expansion of 0.4% U.S. job creation disappoints with only 88k jobs created in March; unemployment falls to 7.6% as individuals fled the labor force Cyprus bailout discussions enhance recent concerns surrounding Europe s growth prospects Evidence of a continuously strengthening consumer base offers encouragement Federal Reserve continues to signal the need for an accommodative monetary policy; supported by further asset purchases Market Reaction U.S. Treasury yields spiked in early March before the flight to quality caused by European concerns triggered further compression Spread sectors widen providing attractive opportunities on a selective basis Equity market bull run continues as S&P shrugs off economic concerns and maintains rally; benefiting from Fed policy 3

4 First Quarter Market Movers First Quarter market volatility was provoked by a mix of positive economic news and fiscal policy concerns; both domestically and abroad. 0.95% 5 Year U.S. Treasury Yields 0.90% Fiscal Cliff Deal 0.85% 0.80% 0.75% 0.70% Positive Economic News: Housing, Manufacturing, Jobs Positive Economic News: Consumer Spending, Banking Stress Test, Jobs 0.65% 12/31/12 1/29/13 2/27/13 3/28/13 Source: Bloomberg 4

5 Increased Income Supports Economic Growth Personal income has continued to grow post recession offering additional evidence of a steadily improving economic environment. The economic impact of increased income is enhanced by individuals willingness to spend it at a higher rate than in recent history. Personal Income vs. Personal Expenditures (Billions) $15,000 $14,000 $13,000 $12,000 $11,000 $10,000 $9, % 84.00% 83.00% 82.00% 81.00% 80.00% Personal Expenditures (% of Personal Income) Six Year Avg: 82.4% $8, % 2/1/2007 6/1/ /1/2007 2/1/2008 6/1/ /1/2008 2/1/2009 6/1/2009 Personal Income 10/1/2009 2/1/2010 6/1/ /1/2010 2/1/2011 6/1/ /1/2011 2/1/2012 Personal Expenditures 6/1/ /1/2012 2/1/ % 2/1/2007 6/1/ /1/2007 2/1/2008 6/1/ /1/2008 2/1/2009 6/1/ /1/2009 2/1/2010 6/1/ /1/2010 2/1/2011 6/1/ /1/2011 2/1/2012 6/1/ /1/2012 2/1/2013 Source: Bloomberg and the Bureau of Economic Analysis. 5

6 FOMC s Market Impact As the Fed s monetary policy and asset purchase programs have held yields near all time lows, investors have searched for return in alternate sectors. The equity markets have benefited from Fed policy with stocks reaching historical high levels. 5.00% 4.50% 4.00% QE1 S&P Year Annualized Return: 10.74% (3/31/09 3/31/13) QE2 Operation Twist Operation Twist Extended QE3 QE4 1,800 1,600 1, % 1, % 2.50% 2.00% 1, % % % % 0 Jan 09 Mar 09 May 09 Jul 09 Sep 09 Nov 09 Jan 10 Mar 10 May 10 Jul 10 Sep 10 Nov 10 Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 2 Yr Treasury (left axis) 5 Yr Treasury (left axis) S&P 500 (right axis) Source: Bloomberg. Annualized returns for S&P 500 include the impact of dividends reinvested into the index. 6

7 University of Michigan Consumer Confidence Consumer confidence unexpectedly dropped to a nine-month low in April to This may be from continued effects of the payroll tax. Retail sales also dropped to a nine-month low. At the same time, the stock market and property values are up Mar 08 Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Source: University of Michigan Survey Research, Bloomberg. 7

8 Housing Market Continues to Rebound The housing market continues to show signs of steady improvement; a positive indication of the direction of economic growth. Home Builder Confidence and Existing Home Sales continue to improve from their recession lows. National Association of Home Builders Market Index U.S. Existing Home Sales Point Where a Majority of Builders Consider Conditions Good Mar 08 Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Mar 08 Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Millions Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Source: National Association of Home Builders; National Association of Realtors 8

9 Housing Prices The housing prices are also steadily improving. 10% 1,200 5% 1,000 0% 800 YoY % Change 5% 10% % % % 0 2/29/08 8/31/08 2/28/09 8/31/09 2/28/10 8/31/10 2/28/11 8/31/11 2/29/12 8/31/12 2/28/13 S&P/Case Shiller Composite 20 City Home Price Index YoY Housing Starts Source: Case Shiller 9

10 Manufacturing Output Continues to Grow Another indication of economic growth is the consistent level of manufacturing output that has been produced. This reading saw a positive uptick in January, and has shown consistent expansion since the end of the recession. 65 ISM Manufacturing Index 60 Contraction Expansion Mar 08 Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Source: Institute for Supply Management 10

11 Inflation Remains Stable Inflation remains stable and well below the Fed s target for maximum inflation of 2.5% which is now incorporated into their monetary policy. The cost of living decreased for the first time in four months as cheaper gasoline and clothing have kept inflation in check. 6% 5% 4% 3% YoY % Change 2% 1% 0% 1% 2% 3% 2/29/08 8/31/08 2/28/09 8/31/09 2/28/10 8/31/10 2/28/11 8/31/11 2/29/12 8/31/12 2/28/13 Source: Bureau of Labor Statistics, and Bloomberg CPI YoY Core CPI YoY 11

12 U.S. Treasury Yields The effects of the Fed s monetary policy to keep interest rates low has driven Treasury yields even lower. 6% 5% Fed Cuts Rates to 0% QE1 QE2 Operation Twist Operation Twist Extended QE3 4% 3% 2% 1% 0% 3/29/2007 3/29/2008 3/29/2009 3/29/2010 3/29/2011 3/29/2012 3/29/ Year 5 Year 10 Year Source: Bloomberg 12

13 Fixed-Income Index Returns 1-3 Year Effective Yield 1 Month 3 Month 1 Year 3 Years Duration 2/28/ /31/2012 3/31/2012 3/31/2010 U.S. Treasury % 0.02% 0.12% 0.64% 1.24% Agency % 0.05% 0.11% 0.67% 1.37% Corp A-AAA % 0.08% 0.44% 2.75% 2.93% MBS % 0.08% 0.01% 1.19% 2.84% Municipals % 0.05% 0.45% 1.05% 1.63% 1-5 Year U.S. Treasury % 0.04% 0.15% 1.26% 2.36% Agency % 0.05% 0.14% 1.19% 2.04% Corp A-AAA % 0.10% 0.58% 4.05% 4.23% MBS % 0.12% -0.03% 1.88% 3.82% Municipals % 0.03% 0.65% 1.68% 2.48% Master Periods ending 3/31/2013 U.S. Treasury % 0.11% -0.26% 3.23% 5.41% Agency % 0.08% 0.05% 2.51% 3.72% Corp A-AAA % -0.04% -0.18% 6.88% 7.45% MBS % 0.10% -0.07% 1.91% 4.17% Municipals % -0.58% 0.52% 5.61% 6.56% Source: BofA Merrill Lynch Indices 13

14 Equity Market Index Returns Periods ending 3/31/2013 Country 1 Month 3 Month 1 Year 3 Years Americas Dow Jones Industrial Average United States 3.9% 11.9% 13.4% 13.3% S&P 500 United States 3.8% 10.6% 14.0% 12.7% NASDAQ Composite United States 3.5% 8.5% 7.4% 12.2% Russell 2000 (Small Cap) United States 4.6% 12.4% 16.3% 13.4% Europe EURO STOXX 50 Price EUR Europe Union (2.3%) (2.8%) 7.0% (0.9%) FTSE 100 United Kingdom 1.4% 2.8% 10.3% 8.4% Deutsche Borse AG DAX Germany (1.3%) (0.7%) 7.9% 6.3% IBEX 35 Spain (5.7%) (4.8%) (1.3%) (7.5%) FTSE MIB Italy (5.6%) (8.6%) (4.0%) (10.5%) Swiss Market Switzerland 1.9% 11.6% 22.1% 10.9% Asia / Pacific Nikkei 225 Japan 5.8% 9.7% 9.7% 5.5% Shanghai Stock Exchange Composite China (5.3%) (1.0%) 2.8% (5.6%) International MSCI ACWI (All World) International 1.9% 6.6% 11.2% 8.4% MSCI Emerging Markets Index International (1.7%) (1.7%) 2.3% 3.5% Returns adjusted by USD currency Source: BofA Merrill Lynch Indices 14

15 Disclaimer This material is based on information obtained from sources generally believed to be reliable and available to the public, however PFM Asset Management LLC cannot guarantee its accuracy, completeness or suitability. This material is for general information purposes only and is not intended to provide specific advice or a specific recommendation. All statements as to what will or may happen under certain circumstances are based on assumptions, some but not all of which are noted in the presentation. Assumptions may or may not be proven correct as actual events occur, and results may depend on events outside of your or our control. Changes in assumptions may have a material effect on results. Past performance does not necessarily reflect and is not a guaranty of future results. The information contained in this presentation is not an offer to purchase or sell any securities. 15